If you find yourself in the fortunate position of having some surplus cash, you might be wondering how best to use it.
For example, if you’re still paying a mortgage, this could be an opportunity to overpay and clear some of the debt.
On the other hand, you might be considering putting the money into cash savings or investing in the markets.
While there’s no one-size-fits-all approach, there might be certain options which work better with your personal circumstances. Read on to discover the pros and cons of paying into your mortgage versus growing your cash savings or investments.
Clearing credit card debt and loans is a key consideration before paying off your mortgage
A mortgage can often feel like a financial trap, and the idea of paying it off or reducing it can be very appealing if the option presents itself.
If you have some extra cash, either as a lump sum or an increased monthly income, this could well be one of your considerations. Of course, there may be something on your bucket list you’d like to spend the money on, such as a longed-for trip or a particular luxury.
But if paying off debt is your priority, before you think about paying extra on your mortgage, it’s a good idea to clear any other outstanding payments, such as credit cards or loans, as these tend to be high-interest debts.
The pros and cons of overpaying your mortgage
Making extra payments on your mortgage could lead to you:
- Repaying your loan more quickly, as reducing your balance will lower the number of repayments you’ll need to make
- Reducing the total amount you pay, as a smaller balance will incur less in the way of interest
- Improving your remortgage options, as having a lower loan-to-value (LTV) can make you a more likely candidate for lower interest rates when it’s time to renew. The LTV is the ratio of your current remaining mortgage balance to the market value of your property.
However, there are some drawbacks to be aware of:
- Penalties and charges sometimes apply, so check what these are before overpaying.
- You can’t easily access your wealth, as your money will be tied up in your property. To release cash, you’ll usually need to either sell your house or take out another mortgage.
It’s a good idea to keep some cash reserves for emergencies, such as boiler repairs or other maintenance work.
Talk to your financial planner about the pros and cons of investing versus cash savings
If investing or making cash savings is more appealing to you, again, there are some pros and cons to bear in mind before making your decision.
It’s always a good idea to talk to us at Fingerprint before you make any firm decisions, as we can talk you through your options based on your personal circumstances.
The pros and cons of investing
Investing can bring its own set of potential advantages, such as:
- Long-term growth: If stock market returns are higher than your mortgage interest rate, then you could be better off investing.
- Tax efficiencies: You can invest up to £20,000 a year into a Stocks and Shares ISA without paying Income Tax or Capital Gains Tax (CGT) on any returns.
- Pension tax relief from the government on private pensions: This is automatically applied at 20%, but if you’re a higher-rate or additional-rate taxpayer, you can claim further tax relief back through your Self Assessment form.
There are also some possible disadvantages associated with investing, including:
- Potential losses: Past performance isn’t an indicator of future gains, and you always need to understand the potential risks involved with investments. Some investments carry a higher risk than others.
- Lack of accessibility: Investments generally work best when left alone, so plan for long-term investments of at least five years. Market volatility is common, and leaving your funds invested can often allow them to ride through these periods of unrest and navigate drops in the market.
Always remember, there are never any guarantees where investments are concerned.
The pros and cons of cash savings
As we’ve already outlined, it can be a good idea to have some cash reserves as an emergency fund, and other benefits include:
- Tax efficiencies: If you choose to save into a Cash ISA, you can put in up to £20,000 for the 2026/27 tax year. Any interest you receive is free from Income Tax and CGT.
- Protection: Cash savings are protected by the Financial Services Compensation Scheme (FSCS), which automatically guarantees up to £120,000 per person if your bank or building society goes out of business.
However, it’s a good idea to be aware of some of the limitations of cash savings.
- New threshold for Cash ISAs: If you’re under 65, from April 2027, you’ll be limited to an annual £12,000 allowance for a Cash ISA, with the remainder of your £20,000 allowance needing to be spread across other ISA products. If you’re over 65, however, your £20,000 allowance can be allocated however you wish.
- Limited growth: Although your cash savings will receive some interest, this is unlikely to match the potential returns you could make by investing in the markets.
Cash is often considered a “safe” option, but it’s always a good idea to take financial advice to make sure you’re choosing it for the right reasons.
Get in touch
If you’d like to find out more about overpaying your mortgage or cash savings versus investments, with your own circumstances in mind, please get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100. We’re always happy to help.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.